Question

The table below shows a portfolio of stocks.

1. Stock	2. Total Value	3. Weight	Stock Return
			Recession (60%)	Normal (40%)
MRK	$ 4,600		15%	10%
VZ	$ 4,400		1%	15%
AAPL	$ 7,500		8%	18%
CAT	$ 2,500		-2%	5%
FDX	$ 1,000		3%	12%

Using the information on the table, perform the following tasks. (30 points) 1. Stock 2. Total Value 3. Weight Stock Return Recession (60%) Normal (40%) MRK $ 4,600 15% 10% VZ $ 4,400 1% 15% AAPL $ 7,500 8% 18% CAT $ 2,500 -2% 5% FDX $ 1,000 3% 12% a. Complete column 3 using the total value to compute the weights. b. Calculate the overall expected return of the portfolio assuming that the probability of a recession is equal to 60%. c. Calculate the standard deviation of the portfolio.

Answer 1

complete formula used for variance of portfolio :

Variance of portfolio =(C3*C3*G3)+(C4*C4*G4)+(C5*C5*G5)+(C6*C6*G6)+(C7*C7*G7)+(2*C3*C4*B10)+(2*C3*C5*B11)+(2*C3*C6*B12)+(2*C3*C7*B13)+(2*C4*C5*B14)+(2*C4*C6*B15)+(2*C4*C7*B16)+(2*C5*C6*B17)+(2*C5*C7*B18)+(2*C6*C7*B19)